Applied Materials, Inc.

Afterwards, there will be a question and answer session. I would now like to turn the call over to Liz Morali, Vice President of Investor Relations. Liz, you may begin.

Thank you. Good afternoon and thank you for joining us for today's call. With me today are Gary Dickerson, President and CEO, and Bryce Hill, CFO. Before we continue, let me remind you that today's discussion contains forward-looking statements within the meaning of the federal securities laws, including predictions, estimates, projections, or other statements about future events. Actual results may differ materially from those mentioned in these forward-looking statements as a result of risks and uncertainties. Information concerning these risks and uncertainties is discussed in our most recent form 10-K, 10-Q, and 8-K filings with the SEC. We do not intend to update any forward-looking statements. During today's call, we will also reference non-GAAP financial measures. Reconciliation of GAAP to non-GAAP results can be found in today's earnings press release and in our quarterly earnings materials, which are available on our Investor Relations website at .appliedmaterials.com. I will now turn the call over to Gary.

Thanks, Liz. In our second fiscal quarter of 2025, Applied Materials delivered strong results across the board, including record earnings per share. These results reflect great execution by our teams around the world, as well as the agility and flexibility we have in our global operations and supply chain. While we are paying close attention to a highly dynamic macro environment, we have not seen significant changes in market demand. Our customers remain focused on winning the race to be first to market with transformative new technologies. Applied is working closely with our customers and partners to accelerate the industry's roadmap. We are very well positioned at major technology inflections in fast-growing areas of the market, which supports our multi-year growth trajectory. In my prepared remarks today, I'll provide our latest market outlook. I'll explain how Applied's innovative products and services are enabling fundamental advances in semiconductor technology. And I'll describe how we are translating these innovations into sustainable, profitable growth across our business. Starting with our perspective on the market, the major technology trends reshaping the global economy, including IOT, automation and robotics, electric and autonomous vehicles, and clean energy are all built on top of advanced semiconductors. Central to our future market outlook is AI, which is the most transformative technology of our lifetimes and has almost limitless potential use cases. While we are seeing remarkable progress in AI capabilities, we're still in the early phases of a multi-decade build-out of applications and infrastructure. Large-scale deployment of AI will require major advances in computing performance and energy efficiency that can only be achieved through disruptive innovation across the technology stack. These requirements are reshaping the semiconductor roadmap and changing the way chips are designed and manufactured. The impact of AI data center innovation and investments is apparent in the wafer fab equipment market where there are significant shifts in the spending mix this year. We see investment in leading edge foundry logic growing substantially in 2025, and we also expect spending for leading edge DRAM to be up significantly. We see lower spending in China with investments in both DRAM and mature logic down for the year. And finally, we are seeing an uptick in NAND investment, albeit from the very low level seen over the past several years. Against this market backdrop, applied is well positioned for 2025 and beyond. In 2024, we underperformed the market in China due to the market access restrictions imposed on US companies. At the same time, outside of China, we grew faster than our peer group thanks to our strength in leading edge foundry and DRAM. Trade restrictions have also had an impact on our service business. Despite these headwinds, we grew our core parts and services revenues in the low double digit range last year, and we're on track to deliver a similar growth rate in 2025. On top of our growing install base, we are successfully increasing the portion of those systems in the field covered by higher value advanced services and comprehensive service agreements. More than two thirds of our service revenue comes from subscriptions, and we expect this percentage to further increase in the coming years. At a company level through 2024, applied materials has grown revenues for five consecutive years. This momentum continues in 2025. If we take our first half results, plus our third quarter guide, revenues are up 7% year to date. Looking further ahead, we also believe we're in a great position for the future, given the direction of the industry roadmap, our strong leadership positions at key device architecture inflections, and the unique portfolio of solutions and capabilities we provide to our customers. Customers are racing to be first to market to deliver major architecture innovations in logic, compute memory, packaging, and power devices, including next generation gate all around transistors, backside power delivery, 4F squared and 3D DRAM, advanced packaging, compound semiconductors for power electronics, and silicon photonics. These technology inflections grow the market for wafer fab equipment, increase the relative mix of materials engineering technologies, and provide opportunities for applied to gain market share. Advanced foundry logic is a great example of this. If we compare an advanced fab using integrated gate all around and backside power delivery architecture to the last generation of FinFET technology, applied revenue opportunity is approximately 30% higher for the equivalent fab capacity. In advanced DRAM, we're focused on addressing the most critical steps for next generation technologies, and this has enabled us to establish a strong leadership position in this market. In 2025, we expect our revenues from advanced DRAM customers to grow more than 40% as they ramp investments in DDR5 and high bandwidth memory. Across advanced foundry logic and DRAM, we are introducing innovative new solutions that are being rapidly adopted by the market. One example is our SIM3 Magnum etched system for advanced patterning, which has generated more than $1.2 billion of revenue since we launched the product in February, 2024. Another example is our breakthrough cold field emission E-beam technology that has strong momentum in gate all around and high bandwidth memory, and supported record revenues for our process diagnostic and control business this past quarter. As we look at how the industry's roadmap is evolving, we see our broad capabilities and connected product portfolio as a major leadership strength. This gives us earlier visibility and a more holistic view of the industry's most valuable technical opportunities. It allows us to develop solutions to address those high value opportunities faster, and most importantly, it means we can deliver unique solutions by co-optimizing and combining our innovations. With the pace of technology accelerating, being first to market has incredible value for our customers and applied materials. For this reason, another key pillar of our strategy is high velocity co-innovation. Our goal is to increase the speed of developing and commercializing next generation technologies through earlier and deeper collaboration with customers and partners. Applied's global Epic platform is designed to support this strategy by providing unique physical and digital infrastructure to accelerate learning rates and optimize the effectiveness and efficiency of R&D resources. Construction of our new flagship R&D facility, the Epic Center in Silicon Valley is progressing on schedule, and we expect the center to start operations in spring, 2026. Before I hand over to Bryce, I'll quickly summarize. First, while we recognize that the macro environment is highly dynamic, Applied continues to deliver strong financial performance. We are not currently seeing significant changes in customer demand, and we have agility in our global operations to adapt to a range of scenarios. Second, the race to deliver high performance, energy efficient AI computing remains the dominant driver of the semiconductor industry's roadmap. Applied is best positioned at the major device architecture inflections that will enable that roadmap to be realized. And third, we are seeing strong traction with our high velocity co-innovation strategy, where earlier and deeper collaboration with our customers and partners is enabling us to bring next generation technology to market faster than ever before. Now I'll turn the call over to Bryce.

Thanks, Gary, and thank you to everyone joining us for today's call. We delivered another strong quarter in fiscal Q2 with robust -over-year revenue growth, gross margin expansion, and record earnings per share. These excellent results were driven by increased leading edge Foundry Logic investments, given the strong end market demand for AI enabling semiconductors. This performance was achieved within the rapidly evolving economic and trade policy environment of the past several months, and we leveraged our global supply chain and diversified manufacturing footprint to successfully navigate the dynamic commercial landscape. With strong profitability and record earnings per share, we increased shareholder capital distributions during Q2 with approximately $2 billion in dividends and share repurchases, and bought back approximately .4% of shares outstanding. Turning to the details for Q2, our results were largely in line with our expectations with total net revenue of approximately $7.1 billion, up 7% -over-year, with growth across all our business segments. Non-GAAP gross margin was 49.2%, up 170 basis points -over-year, and our highest quarterly gross margin since fiscal year 2000. The strong margin performance in Q2 was primarily driven by a favorable mix of our products and business segments. Non-GAAP operating expenses were $1.3 billion, down slightly as a percentage of revenue on a -over-year basis, with growth and R&D partially offset by decreases in G&A, as we focused on funding critical technology and flexion-related research. Non-GAAP earnings per share was a record $2.39, up 14% -over-year, given the revenue growth, better profitability, and share repurchases. Moving to the segments, semiconductor systems revenue was $5.26 billion for Q2, up 7% -over-year, with growth in Foundry Logic as customer investments at the leading edge more than offset declines for the ICAPS nodes that serve the IOT, communications, automotive, power, and sensor markets, and growth in NAND upgrades more than offsetting -over-year declines in DRAM. Non-GAAP operating margin of .4% was up 150 basis points -over-year. Moving to applied global services, AGS delivered revenue of $1.57 billion in Q2, up 2% -over-year, as healthy growth in services more than offset the expected decline in sales of 200-millimeter equipment. Non-GAAP operating margin of .5% was flat -over-year. Lastly, our display business delivered revenue of $259 million with non-GAAP operating margin of 26.3%. Moving to the balance sheet and cash flows, we ended the quarter with cash and cash equivalents of $6.2 billion and debt of $6.3 billion, and cash from operations in the quarter was approximately $1.6 billion, or 22% of revenue. Capital expenditures were $510 million up from the year-ago period and driven by the build-out of Applied Materials' Equipment and Process Innovation and Commercialization Center, EPIC, the largest and most advanced facility of its type globally. Free cash flow for Q2 was approximately $1.1 billion. As I mentioned earlier, we increased capital allocation in Q2 with total shareholder distributions of approximately $2 billion, with dividends paid of $325 million and share repurchases of approximately $1.7 billion. As previously announced, during the quarter, our board of directors approved a 15% increase to our dividend per share. This marks another year of healthy growth for our dividend, one of our key capital allocation priorities, and as I like to point out, the dividend and its growth are closely correlated with the recurring revenue and profits in our services business. We also announced that our board approved an additional $10 billion share repurchase authorization, and as of the end of the quarter, approximately $15.9 billion in total remains available to us for future share repurchases. Turning to our outlook, as we contemplate the -over-year performance we expect in Q3, we are seeing acceleration from our leading edge Foundry Logic products, which are key enablers in the ongoing -all-around build-out and which will more than offset a lower level of investment in the iCAPS nodes. Following two years of strong spending by these customers, we also expect a stable and healthy DRAM market and growth in NAND driven by upgrades. Factoring in these views for fiscal Q3, we expect total revenue of $7.2 billion, plus or minus $500 million, representing a 6% increase -over-year at the midpoint and a non-GAAP EPS of $2.35, plus or minus $0.20, representing an 11% increase -over-year at the midpoint. We expect semiconductor system revenues of approximately $5.4 billion, up approximately 10% -over-year, and AGS revenue of approximately $1.55 billion, down 2% -over-year, with growth in core services impacted by the trade restrictions previously disclosed and declines in demand for 200-millimeter equipment. Rounding out the business segments, we expect display revenue of approximately $250 million. Lastly, given our business mix in Q3, we expect non-GAAP gross margin of approximately .3% and non-GAAP operating expenses of approximately $1.3 billion, and we are modeling a tax rate of approximately 13%. In closing, while the trade environment continues to evolve, our global supply chain and diversified manufacturing capabilities provide us with significant agility and flexibility to respond to changing conditions. In the near term, we see overall demand and customer investments continuing at the expected rate and pace, even in the current environment, and the long-term secular drivers for growth in our business remain intact. We are positioning ourselves to benefit from the opportunities that will emerge as the equipment industry invests and we report a $1 trillion plus semiconductor market by the end of the decade, and we are investing for the growth that we expect in our business over that time. Thank you, and we're now ready to begin the Q&A. Liz?

Thanks, Bryce. To help us reach as many people as we can on today's call, please limit yourself to one question. If you have an additional question, please re-queue, and we'll do our best to come back to you later in the session.

Thank you. Ladies and gentlemen, if you do have a question at this time, please press star one one on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star one one again. And our first question comes from the line of Stacey Raskin from Bernstein Research. Your question, please.

Hi, guys. Thanks for taking my questions. I wanted to dig into services in China. So last quarter, you talked about like the incremental hit from the China restrictions across equipment and services, and we saw the hit particularly on the AGS segment, but you'd said that you'd return to sequential growth in Q3, but this is not sequential growth. This is kind of flattish to maybe even down a little bit sequentially. I guess what's going on there? Is that just like a bigger hit than expected on 200 millimeter or is China worse? And how should we be thinking about growth for this business, I guess, into the end of year? Do you think it resumes like sequential growth in Q4?

Hi, Stacey. Thanks for the question. So on the AGS, you've got a lot of those elements correct. So what we would say is the core business in Q2 had a record, and we expect the core to grow at low double digits during the year, you know, just like you would expect for that part of the business, even with the impacts we've seen from lower China business due to those trade restrictions. In the quarter, our Q2 and Q3, that's where you have the effects of some of those accounts becoming restricted. So the year over year growth, you know, we just made year over year growth for the quarter on AGS, and you're right, it's really the 200 millimeter equipment that slows down significantly during that quarter that makes that, you know, look weaker from a performance perspective. So I think the key things that, you know, we want our investors to think about is AGS will grow at low double digits going forward as we digest these trade rules. With our Q3 guidance, you can see that it's, you know, marginal quarter over quarter in total, where we'll have, you know, the full effect of all of those rules, but the core will be growing year over year, and we'll see that low double digit growth for the core for the full year. Going forward after Q3, you should expect to see the, you know, sequential type of growth that you would expect to deliver that low double digit going forward. And then I would just point out, you know, just for investors to remember that, yes, we do connect our dividend to the recurring profits for that business, and it is largely a recurring revenue business. So about 90% at this point is recurring revenue with, you know, high renewals of multi-year contracts, and about 66% of the business is under those subscription agreements, so pretty strong from a, you know, recurring revenue and profit perspective. Thanks for the question.

But it does seem like the 200 millimeters weaker than you thought, like is that correct?

Yeah, I think that's one factor. It might be a little bit less than we thought, and then the second is we expected a little bit more in utilization for the quarter, and utilization stayed about flat for the quarter, so the spare side of the business was also probably not right up to what we expected.

Got it, that's helpful, thank you.

Yeah, Stacey, on 200 millimeter, a lot of that business is tied to power electronics, and long term, you know, we think that's gonna be mid to high single digit growth, but in the near term, that business is down from where it was at previously. So again, that's one of the things that's causing that business to be weaker in the near term, but in service, we're driving a lot of service innovation. We have 8,000 tools connected in the field, and I think high confidence that will grow at low double digit going forward.

Got it, thank you. Thank you, and our next question comes from the line of Vivek Arya from Bank of America Securities. Your question, please.

Thanks for taking my question. So if I contrast the sales group that you have versus peers, right, many of them are expecting to grow double digit. You guys are more consistent at this, you know, 7% or so growth rate, and the perception is, you know, your higher Icaps exposure. So could you help us find what Icaps is now as a percentage of sales? Do you think it has bottomed? You know, can it continue to be a headwind? And if you could give us some trends on China versus non-China Icaps demand for the rest of the year. Thank you.

Hi Vivek, thanks for the question. So I guess I would start, mature logic, you know, Icaps with the Icaps end markets, IOT communications, auto power sensors for us. First thing we would say is, you know, we expect mid to high single digit growth across the horizon heading to that, you know, one to $1.3 trillion market by 2030 from a semi perspective. And when you look inside our business, we're expecting right now, if you look at semis and AGS, we would say mid 20s percent will be about the share of the China business for us, if that gives you a perspective there. And when we think about China specifically, you know, we're restricted from competing with some accounts, in some accounts, but for the accounts that we're able to sell to, we think we're performing very well from a share perspective. We expect those markets to grow. And, you know, we see that market investing more and more in 28 nanometer going forward. They kind of built out the 50 plus nanometer capacities, now focusing on 28 nanometer, and we feel like we're very well positioned on 28 nanometer. We've got, you know, the world leading foundry positions in that node. So we're confident that, you know, that 25% for the business is probably a good number to think of without display. And that should grow over time, looking forward.

Yeah, Vivek, maybe just to clarify the mid 20s, as a percentage of our total company revenue, is China semi including equipment and service. So that's kind of that number. And I'm sure you know, and other people on the call know, we have a display business that adds a few percent to overall applied revenue. And what I would add, you know, certainly we're extremely well positioned in the big drivers for AI. If you look at high performance logic, DRAM compute memory, high bandwidth memory, packaging, power electronics, all of those areas are the fastest growing areas of the market, very well positioned there. And as Bryce said, in Icaps, we expect over time that'll grow kind of mid to high single digits. The 28 nanometer investment, as Bryce said, is increasing significantly as a percentage of the total in China. And our share there is higher. So, you know, that'll help us in 25 and also going forward. The other thing I'd say about Icaps, you know, this has been a focus for us for more than five years. We have new products in Icaps that will enable us to expand into large new segments. We have new products where we have significant costs and innovations to better compete in cost sensitive areas of the market. So I'm optimistic that with all of those different factors, we're gonna continue to see strong growth. We've grown five years previous to this year. We're growing in the first three quarters of 25. And I think really well positioned for these key inflections.

Thank you. Thank you. And our next question comes from the line from CJ Muse from Kent efforts, Gerald. Your question, please.

Yeah, good afternoon. Thank you for taking the question. I guess Bryce wanted to focus on gross margins. I think a quarter ago you talked about 48.2 as kind of the floor reflecting, you know, China normalizing, but that with kind of trade tensions or whatnot, it might now be 48%. Was hoping you could kind of update on that. And then longer term into 26 and beyond, can you kind of speak to how you see value based pricing, cost reductions and balancing manufacturing across both Austin and Singapore and where trajectory for margins could go? Thank you.

Thanks, CJ. Good to hear from you. Yeah, 48.2%. So obviously we had 49.2 in the quarter. We talked about a very, in the Q2, we talked about a very favorable mix. And our guide is 48.3. And you're right. We highlighted, you know, investors might remember last year we were in the 47s, mid 47s, and we were hoping that we could get it into the 48s. And we've done, we've made good progress on pricing, cost management and logistics improvements. And so I do feel like the low 48s, probably right around 48.2, 48.3 is the right level where the company's operating at this point. And that has modest impact from tariffs. So in Q2, very small impact from tariffs because, you know, we had inventory positions that were pre-tariffed. And then in Q3, in our guidance, also modest effective tariffs because you pointed out, we have a very flexible manufacturing operation with a global footprint. We have a global supply chain. We've worked for years since COVID on duplicating sources, you know, across the globe. And we'll be making price adjustments for the things that, you know, cannot be managed from a tariff perspective. So our guidance for Q3 really reflects being able to manage that environment very well and having the flexibility to manage it very well. Then the last thing to say on the pricing, we do feel like we're making very good progress with value-based pricing and cost management. And I would just say that our expectation is we'll continue to make improvements to that level of margin as we go forward.

I see, Jay. This is Gary. One thing I would say, you know, aligned with what Bryce talked about, we've been driving these cost improvements. We've made a lot of progress there. We're also driving better value capture as we go forward. You know, we're enabling many of these really critical inflections for the industry. And I think the thing that I would focus on here is sustainable margin improvement. We've made progress this year. We've been making progress over the last few years, but I really believe that the initiatives that we're driving in cost improvements, the initiatives we're driving in value capture, all of those things will sustain going forward and we'll continue to see progress this year and in future years.

Thank you. And our next question comes from the line Melissa Weathers from Georgia Bank. Your question, please.

Hi there. Thank you for taking my question. On the DRAM side of things, it seems like HBM has really helped put a floor in DRAM WPV spending since cyclically we're still kind of bouncing along the bottom. But HBM does still seem to be driving nice growth. So can you help us understand the puts and takes on how to balance those two dynamics going forward? Like, how do we think about the cyclical piece of DRAM compared to the HBM upside that you're seeing?

Okay, Melissa. Hi. Yeah, thinking about the HBM component. So from a wafer starts perspective, I think in this year, HBM as a component of DRAM should reach 16%. And what we would highlight there is it's growing at a 40% rate similar to the AI data center type components on the data center side. So that has put DRAM in total, including HBM equipment, really continuing to operate at very high levels. So at least on our side, I wouldn't say cyclical low. I'd actually say, maybe last year was a record year, this year will be close to a record year or it could be a record. DRAM is very strong. And the way we think of it is it's being pulled by that AI leading edge and all the compute memory that's needed for that and the HBM is a great example of that. So hopefully that gives you a perspective from our side, that business is operating very strongly across all those end technologies.

Yeah, Melissa, this is Gary. I would add that if you look a little over a decade, we've gained 10 points of market share in DRAM. And the compute memory is going to be one of the fastest growing areas of the market over time. So if you look at, especially in the AI data center, that business is growing very quickly. And we talked about with DDR5 and HBM, 40% growth with our top three leading customers. So that business is growing at a high rate and we are very strongly positioned. If you look at what we've been able to achieve in terms of share gains in DRAM and where the DRAM architectures are going for the future, the next big inflection is 4F squared. That architecture is a great opportunity for applied. We're deeply engaged with all of those different customers and we will outperform with all of our innovations as that new architecture is adopted. So again, very strong growth in DRAM for applied outperformance in the past and very well positioned going forward.

Thank you.

Thank you. And our next question comes from the line of Harlan Zerr from JP Morgan. Your question, please.

Good afternoon. Thanks for taking my question. Last couple of earnings calls, you guys have been articulating a leading edge foundry logic and leading edge memory spending acceleration as we move through the year, which implies that calendar second half spending on leading edge technologies will be higher versus the first half spend. Is that still the team's view? And then kind of tied to that, right? Advanced technology drives more penetration of your integrated system solutions. I think you guys exited last year with integrated solutions representing about 30% of your overall systems business. Where do you anticipate that mix exiting this fiscal year?

Great, Harlan, good to hear from you. So I'm a leading edge, definitely accelerating and what we were highlighting in previous quarters as we sort of were thoughtful about the slower investment rate in I-CAPS and the mature technologies after two years of very rapid growth, we were all hoping that leading edge would begin to accelerate after a lesser year in 24 and 23. And that's exactly what we're seeing. So you see a pickup through the course of the year that should be matched hopefully by all the things that you see in the market. If you look at the cloud service providers, CapEx, those numbers have only been going up. We've seen recent announcements of new factories and spending from the leading logic companies. So yeah, I think we expect that trend to be enduring when we think about all the technologies that are packed around AI data center. So DRAM, HBM, advanced packaging, and of course leading logic where there's 100% utilization on the front end there, that is accelerating. And then on the integrated equipment, we're still averaging approximately 30% so that you can look at that as growing at the 7% rate, almost 7% rate that we see the business growing at this point in time.

Perfect, thank you.

Thank you. Thank you, and our next question comes to the line Timothy R. Curry from UBS Securities. Your question, please.

Thanks, I had a clarification and a question. So Bryce, I just wanted to clarify what the message is for services for the entire year this year. So I think you were talking about low double digit growth, but I would assume that the back half is up like 30% half on half. So is that really the message or you keep talking about the core part of service, that's what's gonna grow low double digits. So can you just tell us what you think the total business will grow for this year? And then my question is, most of the other companies expect WFE to be pretty first half weighted this year. I know you don't talk about the market as a whole, but can you give us some sense of whether you would also say that markets first half weighted this year or next?

Okay, Tim, thanks. So on the services, yes, when we think about core, we're stripping out the 200 millimeter equipment sales for that. So if you had an estimate in prior years of what those components were, for our core, we're hitting a record in this quarter, we'll have a record next quarter, and we're saying for the whole year, even despite losing, not being able to serve some of those accounts in China, we will have low double digit growth in the core business. So without that 200 millimeter, that 200 millimeter will make the overall AGS business growth look much smaller for the year. And so we'll have to see where that lands, but it'll be much smaller for the year. And then for first half, second half, we're talking about three quarters for applied that are growing almost 7%. And what we would say is the trends that are pulling the business seem fairly durable to us. And we've talked about leading edge accelerating. So without filling in two more quarters, we'll have to see where that goes. But we haven't seen really a change in the trajectory of demand or the trajectory of those trends, in the last 90 days.

Okay, so you have to say that the backup will be pretty flat with the first half. Is that the message?

It's not really the message. Like I said, we won't fill in those last two quarters, probably when you're thinking of calendar year, that would be our Q4 and part of our Q1. So we're not giving specific guidance for that. But what we would say is, almost 7% year over year so far, year to date for the company. And the trends that are pulling on the market seem fairly durable. So hopefully that helps.

Okay, thanks,

thank you. Thank you. And our next question comes from the line of Chris Sankara from TD Cowan. Your question, please.

Yeah, hi, thanks for the question. I also have a question on the clarification. Gary, this is a longer term question for you. You're clearly gaining traction in new technologies like gate all around, backside power delivery. But when I look at your leadership products, more on a unit process specification level, it feels like PBD is moving to AMD. On CVD, H and CMP, you always had US-Japanese competition, but now you have some legit Chinese competition too in those segments. So I'm just kind of wondering how to think about your leadership product momentum over the next one to three years amid these shifts in competition. I also can give any kind of a rationale on the nine person bestie stake, thank you.

Sure, Krishna, thanks. So the way I would think about it, if you look at our leadership products, they're really targeted at the biggest inflections that are being driven by AI. And so in high performance logic, what we've said is that we will, for gate all around and backside power distribution, those are the two big inflections that are going forward. It will gain share and we are extremely well positioned to capture more than 50% of the available opportunity in those inflections. So again, very strongly positioned there. In compute memory and DRAM, again, that's another one that's being driven by AI. And I mentioned that earlier, we gained, in a little over a decade, about 10 points of share in DRAM. And we're, again, very well positioned in DRAM on the last six F squared nodes. And also for four F squared, we're even better positioned. I've met in the last month, I think, pretty much all of those DRAM CEOs and most of the high performance logic CEOs, very strong positions, very deep engagements. And then if you look at high bandwidth memory, we have high share there. Advanced packaging is another one where there are tremendous architecture inflections. And we're just very, very well positioned. So Chris, again, I have high confidence that we will gain share as those inflections happen. And we have visibility because we have such deep relationships with all of these different customers. And one of the things that everybody's focused on is this theme of high velocity co-innovation. Everybody's racing to be first to market with those new architecture inflections. Whoever gets there first wins big, everybody else is left behind. So I think what that's driving is earlier and deeper collaborations with those customers and so again, we have very high visibility on our positions going forward for all of those major architecture inflections.

Yeah, I got it. And Chris, on Bessie, so five year relationship with Bessie, we recently extended our collaboration agreement, working very well with them. I think you know our perspective on energy efficient compute is their solution, combined with our solutions for Dideaway for bonding will be very important for that energy roadmap going forward. And so we felt as we extended the collaboration agreement, we felt that we wanted to make an investment in their company at the same time. And on the 9%, no specific information to share there. We had a lot of investments during the quarter in addition to that with our Epic facility that we're building, the world class fab and Sunnyvale and then also the shared buybacks that we mentioned. So that's the information that we have to share there.

Yeah, Chris, what I would say also, I've personally been involved working with Bessie for many years. They are the leader in Dideaway for Dideaway bonding and our teams have developed an integrated hybrid bonding product with six technologies integrated together. There was a question about integrated products earlier on the call. So in this case, this is a really important innovation for the most advanced in AI memory chips, where again, we have an applied platform with the Bessie bonder along with five other technologies. And we think this is gonna be a meaningful growth driver going forward and contribute to very strong growth rate in our advanced packaging business going into the future.

Thanks, Betty, thanks, guys.

Thank you and our next question comes from Mahdi Hosseini from Shashkwana International Group. Your question, please.

Yeah, thanks for taking my question. This is for the team. What are the key assumptions embedded in the low and a high end of your July quarter revenue guide of 6.7 to 7.7 billion?

Thanks, Betty. You know, that's a student observation. We widened our range by 100 million at this point. So it's plus or minus 500 million for the quarter. We had been doing plus or minus 400 million. And it was really two things. We hadn't changed that in the last few years. And so the business is obviously larger. So we typically ask ourselves whether we should increase the range. And then certainly during this period, as we saw during the quarter, there was a lot of volatility in the macro, in the market, in geopolitical, in trade, et cetera. And so we felt there's a number of scenarios that are being thought about. And so we thought it was a good time to widen the range. There's nothing algorithmic or mathematical in this selection. We just thought we would indicate that there's more volatility in the environment than typical.

And I assume that's more impacting the I-CAP business and the leading edge, which is more strategic, right?

Can

you say again, please?

Yeah, Matty,

I think it really is the revenue size is larger. And there are changes that are happening from a regulatory standpoint, tariffs, those things that create more uncertainty. And so it's really a combination of those two things, but it was very small change in range. But again, it's just those factors.

Thank you guys.

Thank you.

Thank you. One moment for our next question. And as a reminder, if you have

a question, please press star one, one on your telephone. Our next question comes in the line. It was Serene DePrasgeri from Raymond James. Your question, please.

Thank you. My question is on the NAND business. I know it's a relatively small business for you, but it's up nicely and I think you're guiding for growth again. On one hand, your customers are talking about taking utilization down, and on the other hand, you and your peers are talking about spending improving. So if you could talk to the sustainability of the NAND growth and what exactly is driving it, I think that would be helpful. Thank

you. Sure, Serene. This is Bryce. Thanks for the question. So on the NAND business, it has picked up both in our Q2 and in our Q3, obviously coming from lower levels. But yeah, I think for that business, agree that utilization is lower, but most of those investments are made to upgrade process technologies and upgrade factories to the latest nodes. We see low 20s percent bit demand from a growth rate perspective going forward. And the way that the customers have been supplying that is by improving their technologies and advancing those nodes. So most of the businesses upgrades, and I would say they don't really change their plans on upgrades with a change in utilization. They'll focus on having the density advancement they need from a tech perspective. So really, I think it's just that, that these are investments they make with a lead time and they're thinking about upgrading the technology.

Thank

you. Thank you. And our next question comes from the line of Tim Schultz-Mielander from Redburn Atlantic. Your question, please.

Yeah, hi. Thanks very much for taking my question. So I have a question on advanced packaging, and I guess it's a question for Gary here, which is around kind of applied materials, appetite for risk. So it's an emerging application, it's obviously growing very fast, but also maybe the technologies that are gonna be needed on a two, three, four year view in advanced packaging may evolve, may change. And I just maybe wanted to ask kind of what is applied appetite for risk for maybe trying new things, new technologies to serve that market? Thank you.

Hi, Tim.

So in

advanced packaging, this is gonna be one of the most important inflections of the industry. How you connect together all of the different, the high performance logic, the compute memory, DRAM, high bandwidth memory, all of those different chiplets and different components, there's gonna be tremendous innovation in advanced packaging. So applied, we've been investing, and we're the leader in that market. We've been investing for a number of years with new capabilities. We have an advanced packaging lab in Singapore, a full flow lab where some of our leading customers are working with us there on these new architectures. So I think we have, a good thing for us is that we have very high visibility in where the industry is going. And I talked about this concept of high velocity co-innovation. We are working with our customers to shape the industry roadmaps, I think more than anyone else. And so when we're placing those bets, you talked about appetite for risk, we have pretty high visibility where to place the bets because we're in such deep and connected relationships with the customers, and we have this broad, unique and connected portfolio. So we're in deep relationships with our customers, and even our customers' customers, as they're looking at inflections in packaging, AI connectivity, those areas. So again, I have very high confidence there, the innovations that we're driving that will expand our total available market in packaging, and we're extremely well positioned. We've grown significantly over the last few years in packaging 4X revenue in the last five years. And I have a high confidence that we'll continue a very high growth rate going forward.

Pretty hopeful, thank you. Thank you, and our next question comes from the line of Charles Shee from Needham & Company. Your question, please.

Hey, good afternoon. Thanks for taking my question. I have a question more on China. I think maybe two months ago, I'm standing on China, there's a new company called the Side Carrier. They launched 30 new tools, I believe lots of overlap with AMET portfolio, but I think the common perception, based on what I'm hearing is applied, probably has likely the greater downside and a lot of the peers with all these new companies emerging in China. Wonder if any thoughts you can provide on that particular competitor, and what could be the implications for applied market share, especially I think the team just talked about actually gaining more share in China as the customers more transitioning from 55, 40 nanometer to 28 nanometer, thank you.

Hi Charles, thanks for the question. So again, just to remind you, China Semi is in the mid-20s, including equipment and services as a percentage of total company revenue. And yeah, as we talked about earlier, 28 nanometer where the investment is increasing, we have higher share. I think the most important thing for us is we have a great innovation pipeline in ICAPS. We formed this group more than six years ago, it was actually April 12th, 2019 is when we formed the group. And we're driving significant innovations with new products that will expand our markets, new TAM for applied materials, new products that have significant cost innovations for cost competitive areas of the market. So I feel really good about the pipeline that we have going forward expanding our available market and our ability to compete. And so I think in any of these different industries, the key thing is you have to run faster than competitors. And we have a great team in ICAPS, they've delivered great results. And I would say that I'm pretty positive about the pipeline that we have going forward and our position to drive growth in the ICAPS market into the future.

Thank you. And our next

question comes from the line, a Brian Chin from Stiefel, your question please. Hi, good afternoon.

Thanks for letting us ask a question. Gary and Bryce, you clearly remain confident on your positioning for the upcoming key technology inflections in advanced logic. I think generally there's some anticipation that two nanometer and 16 angstrom nodes can represent at least a few hundred thousand of wafer capacity expansion. I don't imagine your thoughts around significance has changed. However, given the current level of geoeconomic uncertainty, what's your view on pacing here and whether this could cause these investments perhaps to spread out over a longer horizon?

I guess I'll start, Brian, and thanks for the question. The way we always think of the market is what's driving demand from a wafer perspective. And you look at PCs and smartphones, they've been growing at low single digits. So those are fairly stable markets. But when you look at data center, it's growing at 20%. And if you look at the, if you carve out the wafers inside that that are associated with accelerators, graphics, et cetera, so the AI component of data center, it's growing at 40%. When we look at the leading edge factories across the industry, they're at 100% utilization. And we all have thought about the gate all around technology, especially with backside power delivery and thought, wow, that's a significant improvement in power performance and density for the chip. So it looks like a really good node. That technology looks like a strong node. So we think the trends from a demand perspective are very strong. And we're expecting a significant build out of that technology. And I think if you look at recent announcements, either cloud service provider, CapEx, or even the largest foundry, you'll see, I think you'll see a lot of energy around the roadmap.

Thank you. And our next question

comes from the line of Chris Caso from Wolf Research. Your question, please.

Yes, thank you. Good evening. I guess the question, we've gone through a lot with your, how are you kind of shaping up this year and know that it's too early to start talking quantitatively on next year. But I wonder if you could kind of address a little bit about qualitatively next year, kind of where you're feeling better about growth for next year. What are the things that we should be looking for as we build out our WFE models into next year? And what's your level of conviction that next year is indeed a growth year?

Hi, Chris, great question. So the way we think about it is we kind of set that anchor one to 1.3 trillion in 2030 for the semi-industry. And you can use a range of assumptions for what the equipment intensity, what the equipment intensity might be associated with that. And that'll give you pretty significant growth in the equipment business over the next five years. And so probably just like you, when you model we don't try to pick the uneven growth that one year might describe. We have, we model pretty smooth growth from here to 2030, riding AI, riding the AI data center, all the key technologies that we're describing when we think about robotics and large language models and all those types of things. We think those are strong demand drivers. So what we would say is those are enduring trends and you can see the industry making the investments right now. You look at the cloud service providers, you look at the foundries, you look at us with the investment we're making in our lab here in Sunnyvale and our platform for innovation across the world. So I think those are the signals that you should look for is are the companies making those investments and do we expect that trend to continue? So I know people always want to know if after five years of growth for applied and we're growing at 7% so far this year, year to date, everybody wants to know if the next quarter after this one will be down or if next year will be down. We really don't model it that way. We just have kind of a smooth growth to that 2030 and we understand it'll be uneven.

And we have time for one last question, thanks.

Certainly and then our final question for today is a follow up from the line of Stacy Raskin from Bernstein Research,

your question please. Stacy, your line is open, you might have your

phone on mute.

Oh, I apologize. Thank you for fitting me in again, I appreciate it. Bryce, I wanted to go back to your commentary just very quickly to make sure I have it on the segment growth for next quarter. I think you said that I thought these were year over year statements, foundry and logic, you'd have leading edge more than offsetting the Icaps to the client. So it sounds like you think foundry logic grows year over year. You said DRAM stable, so DRAM kind of flattish year over year. And then you said NAND growing, I guess year over year, but within the full guide, would that not imply that NAND is down sequentially? Just can you sort of confirm that I have that commentary on the segments, correct?

Yeah, Stacy, I think you've got all those right and it was a year over year commentary that we were providing. So NAND has ticked up, leading logic is definitely accelerating. I think we've shared that mature logic is down, but we expected that after the two years of rapid growth and so to the extent that that's a little lower, it's being filled in by leading and just sort of continued strength on the DRAM. And what's happened in the DRAM business, depending on which quarter you're looking at, the first couple of quarters last year, we had the shipments to China customers. This year, that business is still very strong and it's all that leading edge, those leading edge customers that are making those investments. So I think you have those puts and takes, correct?

Got it, okay. So basically I'd have DRAM down, I guess DRAM down sequentially, NAND could be up sequentially and then Foundry logic would be up pretty decent sequentially if I tie out those year over year statements.

Yeah, that's fair.

Got it, okay, thank you, I appreciate it.

Thank you. Thank you. Thank you, this does conclude the question and answer session of today's program. I'd like to hand the program back to Bryce Hill for any further remarks.

Thank you. In summary, we're pleased to be operating at record levels, we're well equipped to navigate the dynamic conditions in the economic environment and we're investing in significant industry collaborations to accelerate innovation, all of which position us to grow our business over the coming years. Thank you, Liz, please close the call.

Great, thank you, Bryce, and thanks to everyone for joining the call today. I'd like to call your attention to two upcoming investor events. First, Gary will attend the Bernstein Strategic Decisions Conference on May 29th and then on June 4th, Bryce will be at the B of A Global Technology Conference. Lastly, a replay of today's call will be available on the Investor Relations website by 5 p.m. Pacific time today. Thank you for your continued interest in applied materials.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day. Good day.